Media Spotlight: Capital and GWR insist merger benefits everyone

campaignlive.co.uk, Friday, 08 October 2004 12:00AM

The radio companies must persuade advertisers and regulators, Ian Darby writes.

Capital Radio and GWR reckon they've got a compelling argument for a merger. And it's not just the prospect of Classic FM's breakfast host, Simon Bates, sharing cigars and brandies with Capital's Johnny Vaughan at the Christmas party.

Anticipating meddling from the regulators and advertising trade bodies, the two radio companies have outlined in detail how they see the merger benefiting both listeners and advertisers.

It's a simple threefold argument. First, that it will accelerate the future growth of commercial radio's share of listening against the BBC's.

Second, that it will expand radio's share of display advertising and, third, that it will provide the merged group with the opportunity to strengthen its brands and invest in digital assets.

The merger, if given the green light by the Office of Fair Trading and Ofcom, would create a group owning one national and 59 local analogue stations and 93 digital stations. Reach would be around 18 million listeners (36 per cent of the UK commercial radio audience) and its share of total radio adspend would be around 40 per cent.

Leading advertisers, including Procter & Gamble, have already expressed concern that the deal should be scrutinised closely because of the potential clout of the new company. And both the IPA and ISBA have indicated that they want to be closely involved with any regulatory investigation.

Capital and GWR are keen to avoid a protracted investigation by the Competition Commission (this meant the ITV merger took around 16 months). They are keen to work with interested parties such as ISBA ahead of the OFT's scrutiny, in a bid to get advertisers behind the move and get the process completed within a year.

David Mansfield, the chief executive of Capital Radio, will move into the same position at the merged company, with Ralph Bernard, the executive chairman of GWR, taking the role of executive chairman.

Mansfield claims that the merger "seems entirely within the scope of what Ofcom would permit" and that it "falls into the natural development of commercial radio in this country". He adds: "We can't second-guess the Competition Commission but the early indications are we ought to be able to do this."

Cost savings resulting from the merger are estimated at around £7.5 million and there will be some job losses on the national sales teams. But Linda Smith, the commercial director at Capital Radio, who will keep her title at the proposed new company, says: "The benefits of the merger with GWR are a combined group with combined resources to meet the expense of the customer drive for the digital future - there will be more diverse content and platforms."

Smith admits there will be some hard times ahead when deciding where cuts will be made, but says numbers of job losses aren't yet clear. The future of Linda Grant, Capital's managing director for national sales, is in doubt after Duncan George, the managing director of GWR's sales house, Opus, was confirmed as the head of national sales in the new structure.

"I can take it on the chin," Grant says. "I'm disappointed but that's what happens in these mergers. It's also tough for my team. I'm absolutely not averse to staying in the business and I'll crack on with the job in hand."

But while there will be some uncertainty over the coming months, Capital and GWR are trying to reassure customers that it's business as usual ahead of the merger. And agencies argue that while there are differences in the way the two groups trade, on the whole there should be a good fit.

Tim McCabe, the head of radio at Vizeum, says: "Capital has always had an advantage with its London FM station. It attracts big revenue and it can trade certain dayparts in a similar way to TV. GWR has more local business. Selling a big national station like Classic is not such a problem but juggling inventory on so many local stations is more of an issue."

McCabe also feels there are strong synergies between the companies' Gold stations, Capital Gold and Classic Gold, and that the new company can bundle these up for a group sell.

GWR's national Classic FM licence will also provide the new company with a strong offer, bringing in older listeners alongside the younger demographic that tunes in to 95.8 Capital FM and Xfm.

Smith says: "The thing that's important is that we've been having discussions for some time; there are strategic goals and ambitions and the rest will fall into place."

For those anxious about the merger, the main concerns seem to be the new group's share of national ad revenue and potential dominance in local markets such as the East Midlands. Advertisers may be willing to tolerate this for greater investment in programming and digital platforms but the OFT takes consolidation in local radio very seriously and there will be some tough discussions ahead for Capital and GWR.

HOW THEY COMPARE

CAPITAL RADIO

Analogue stations: 25, across five core brands (Capital FM Network,

Century FM Network, Capital Gold, Xfm and Choice)

Digital stations: 58, including Life and Capital Disney

Group turnover: £117.4 million

Pre-tax profit: £22.8 million

GWR

Analogue stations: 35, including the national station Classic FM and 34

local stations with 4.5 million listeners

Digital stations: 35, including Classic, Core and Planet Rock

Group turnover: £125.6 million

Pre-tax profit: £16.6 million

This article was first published on campaignlive.co.uk

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